Stimulus felt at industrial firms as profit falls ease in first nine months

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The decline in profits at the mainland's leading industrial firms eased in the first nine months of this year as government-led economic stimulus measures powered ahead.

Profits at industrials with annual turnover exceeding five million yuan (HK$5.7 million) shrank 9.1 per cent in the period, a 1.5 percentage point improvement from the first eight months of the year, the National Bureau of Statistics said yesterday.

The stimulus measures that aim to pump four trillion yuan investments into infrastructure, urban housing, environmental and education helped turn around fortunes for the transport equipment manufacturing sector in the nine-month period, a trend most economists expected to continue over the next year.

A Morgan Stanley research report forecast further improvement in industrial profits on the back of buoyant domestic demand, fiscal and monetary policies and higher utilisation of production capacity.

The central government recently increased efforts to eliminate excess production capacity in sectors such as steel and cement by restricting entry to the market.

Profits at transport equipment producers jumped 21.5 per cent in the first three quarters, the sharpest growth of all industries, followed by construction material manufacturers with profits rising 21.8 per cent.

However, profits in the oil production industry plummeted 68.3 per cent on lower crude oil prices compared with the historical peak in the third quarter last year. Overcapacity of the steel industry continued to hurt producers, which saw profits drop 62.9 per cent.

Still, some economists who did not think the central government would remove its economic rescue measures in the coming year anticipated better fortunes for industrial companies.

Almost halfway through the two-year economic stimulus package, the central government would commit the remaining two trillion yuan spending or 'even somewhat more' next year, UBS economist Wang Tao said.

However, next year's spending would rest on the property sector after most investments this year focused on rail, road, air and utilities infrastructure, she said.

The spending spree drove the mainland's economic growth 8.9 per cent ahead in the third quarter.

This took the economy's expansion rate in the first three quarters to 7.7 per cent, leaving the central government feeling confident about meeting its 8 per cent growth target this year.

Gaining ground

Drop in profit at leading industrial companies in first three quarters: 9.1%